One main difference between the two methodologies is how inventory is treated.
Angela Gaddie
According to Walmart (2019), the retail giant originally established in the United States has expanded globally, reaching 24 countries. In addition to the challenges I have studied in previous classes including human capital, marketing strategy, and differences in the legal system, there is also the challenge of accounting and the ways it differs from country to country. As a common law system, the United States uses U.S. GAAP whereas other countries such as Germany as is part of the code law system uses IFRS standards. There are a lot of synergies between the two bodies, however the differences are evident as well. Those differences can make it difficult from someone in one country to properly evaluate a company in a different country that is using an alternative set of guidelines. Not only is the format and the terminology different on the financials, the concepts and logic that shape the accounting practices can easily get you to the point where the methods are no longer consistent with one another. As a US-based firm, Walmart uses the U.S. GAAP methodology which is more of a rule-based set of standards with a lot of detail and little disclosure. IFRS on the other has is principle based with fewer standards, less detail, but more disclosure to describe events that if using the U.S. GAAP would be on the balance sheet. One main difference between the two methodologies is how inventory is treated. In the U.S., LIFO is a popular way to account for inventory cost. There are tax benefits with this type of treatment. IFRS does not view LIFO as an appropriate way to account for inventory costs, as it is strictly prohibited. Considering Walmart carries a large inventory, this would drastically change the figures displayed on the financials. A positive is that both accounting methods recognize receivables and investments at their fair value rather than historical cost. Both also include a statement of cash flows. A major challenge for Walmart not conforming exactly to the IFRS is the amount of money it takes essentially convert the statements to IFRS when necessary. Walmart also faces inconsistency in the report of contingent liabilities. GAAP is quicker to add this type of liability to the balance sheet if it is probable and measurable, but IFRS rather point this out in the commentary of the report. Also, due to Walmart’s wide stretch across the globe, it also has the opportunity to access capital in various foreign markets. Without consistency across nations though, it can be very costly for Walmart to convert its financials to the IFRS method for a fair evaluation. In thinking about the convergence of Walmart from GAAP to IFRS, it would be costly up front, however if the majority of the world is using IFRS, then the cost may be worth it in the long run. The Philippines already uses IFRS so just looking at Walmart’s ease of expansion to that country, if both were on the same accounting methodology then that would be much easier to manage.
Walmart. (2019, November 5). In which countries does Walmart operate? Retrieved from Ask Walmart website: https://corporate.walmart.com/askwalmart/in-which-countries-does-walmart-operate
Answer preview to one main difference between the two methodologies is how inventory is treated.
APA
330 words